Few states set for health exchanges

When health insurance exchanges open in 2014, it is now clear that the federal government will be playing the lead, not the understudy.

Many insurance experts and health policy consultants predict only a dozen or so states will be ready to run exchanges on their own — and a few say that projection may be too sunny.

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Only a handful of the most militant states are likely to continue all-out resistance to federal health reform if the law is upheld — which ironically would mean the federal government would run their exchanges.

But for most states, the likely scenario is “partnerships” in which states run some parts of these new insurance markets but the feds run many aspects that consumers will experience most directly.

Thirty-four states and Washington, D.C., received exchange planning grants totaling $856 million. Only 14 of them have passed legislation authorizing an exchange, and a couple more are moving ahead under executive orders from the governor. But even some of these states, further along in the planning process, have slowed down while awaiting the Supreme Court ruling on the health law or because the Department of Health and Human Services has been slow to spell out the detailed rules for setting exchange policy.

This partnership approach, which HHS first proposed last summer, is intended to be a transitional step for states that can’t meet the deadline to open their doors in 2014. But now it’s likely to be the default, not the fallback.

This scenario is causing concern at top levels of HHS that exchanges in most states may not meet a key goal of health reform: functioning as a one-stop shop in which people can easily enroll in health insurance whether they pay for it themselves, qualify for subsidized private plans or are eligible for public programs like Medicaid.

“We’ll do everything we can to make it work,” Amanda Cowley, HHS’s acting director of state health exchanges, said at a meeting of California’s exchange board last week in response to a question about federally run and partnership exchanges. “But it won’t be as good as a state-based exchange.”

Cowley echoed the worry of consumer advocates about whether federally administered exchanges will be able to “talk” to state Medicaid programs.

If they can’t, they worry, low-income people on the cusp of Medicaid eligibility could get caught in a tug of war. The exchange could say they’re too poor for the exchange subsidies. Medicaid could say they aren’t poor enough for Medicaid.

To address this concern, HHS initially planned to take over Medicaid enrollment in states where it’s running the exchange show. But states pushed back hard, and HHS allowed them to keep doing enrollment if they meet requirements like being able to process applications electronically.

“I think everybody’s really committed to making this work,” said Judy Solomon of the Center on Budget and Policy Priorities, “but it’s going to be really hard.”

Lining up the eligibility systems may be hard in some states that haven’t yet completely transitioned to managing enrollment electronically. And states will have to update their rules so that they calculate an applicant’s income the same way that the exchanges will. And the changes will have to be made at a time when state Medicaid programs are already facing massive budget shortfalls that have led to staff cuts in several states.

If exchange watchers’ predictions come true, HHS could be spending a lot of time ironing out kinks.

“By my count, there are 15 to 20 states that have a chance of achieving certification” by the January 2013 deadline to open their own exchanges in 2014, said HHS’s former top exchange official, Joel Ario. But, he qualified, “I think less than half of that number have a good chance.”

Cheryl Smith, who directs the exchange practice at former HHS Secretary Mike Leavitt’s consulting firm, is even more pessimistic, predicting only “between five and 10” states will meet this deadline.